A life insurance policy is an agreement between the policyholder and the insurance company, wherein the insurer agrees to pay the sum assured in the policy as per the conditions mentioned in the policy document when the insured dies. The policyholder is required to pay periodic premiums to keep the policy active. A beneficiary has to be nominated who can receive the proceeds of the life insurance plan.

The importance of having life insurance cannot be stressed enough, especially a term insurance plan. In the event of your demise, it can provide your dependents with much-needed financial security. The extensive payout from a term plan can safeguard the financial future of your family in your absence.

However, it’s important to note that not all policies are created equal, with each offering various incentives like flexibility in tenures, affordable premiums, and other additional benefits. With a large number of insurance products crowding in the market, narrowing down on a policy that best fits your requirements can be an uphill task.

An essential factor to keep in mind while choosing term insurance plans in India, or any other life cover, is the claim settlement ratio. It’s a percentage that gives you an idea of how likely your claims are to be reliably filed and settled. The numerical, objective feature can help you decide which life insurer to choose.

What Does Claim Settlement Ratio¹ Mean?

An insurance company’s claim settlement ratio¹ measures the proportion of insurance claims paid out during the financial year. It is determined in the format of a percentage that represents the number of claims an insurer settles against the total claims filed; thus, the higher the ratio, the better the insurer.

Why is the Claim Settlement Ratio¹ Important?

The value of a life insurance policy lies in the assurance that in the unfortunate event of your demise, your beneficiaries will be able to claim insurance coverage and look after their current and future financial needs. This is the fundamental agreement made between the policyholder and the insurance company, so insurers try to honour as many claims as possible.

Having said that, there are specific situations where your claim might be rejected. This could include an error on your behalf, such as missing or incorrect information while filling out forms or failing to mention certain medical conditions while availing of the life insurance policy. Other reasons could be related to the insurer, such as incompetent practices and low trustworthiness.

Life insurance policies are only as reliable as the insurance company that provides them. The term plan claim settlement ratio¹ will help you form an accurate opinion about the competence and reliability of a potential insurer.

The Insurance Regulatory and Development Authority in India (IRDAI) publishes the Claim Settlement Ratios¹ for every insurance company in the country every financial year. More claim settlement ratio¹ symbolizes more customer satisfaction experience as well as a competent underwriting procedure.

The number can help you determine that an insurance company can be relied upon to fulfil the claim to your nominees in your absence, provided all the policy conditions are met.

How is Claim Settlement Ratio¹ Calculated?

Insurers use a simple formula to calculate the Claim Settlement Ratio¹:

Claim Settlement Ratio1 = (Total Claims Approved / Total Claims Received) * 100

 

 As mentioned earlier, the result is expressed in the form of a percentage. Suppose an insurance company has a claim settlement ratio¹ of 80%. It indicates that 80 claims are settled and paid out for every 100 claims received by the insurance company. You should remember that the claim settlement ratio¹ is an aggregate of claims on all forms of insurance offered by the insurance company, not just that of claims paid out for life insurance policies.

Limitations of Claim Settlement Ratio¹

As crucial as the metric is to determine which policy to buy, there are certain limitations in terms of the information a claim settlement ratio provides:

 

• It's an estimated ratio:
  
  The declared claim settlement ratio¹ is the sum total of all claims paid out by an insurance company for all its life insurance policies and other products. What you see is only an estimated ratio and not the actual ratio for different types of policy – from term insurance and endowment covers to child plans, group insurance, money-back policies, online plans, and so on.
  
  

• It's expressed as a percentage:
  
  The claim settlement ratio¹ is provided as a percentage and not an actual number. This might be misleading as it does not clarify how many claims an insurance company has actually rejected. For instance, an insurance firm dismissing 100 out of 1,000 claims will boast a 90% Claim Settlement Ratio¹. The following year, it may receive 10,000 claims but turn down 500 of them. The company's claim settlement ratio has increased to 95% even though it has rejected more claims.
  
  
• It doesn’t indicate the settlement time:
  
  The claim settlement ratio¹ of life and term insurance plans in India doesn’t denote how long an insurer takes to settle claims. According to the IRDAI, insurers are required to settle claims within 30 days when there is no need to investigate the cause of death. However, some companies might do it much faster, which denotes a smooth, hassle-free claims process and adds to its credibility.
  
  

Despite these limitations, the life or term plan claim settlement ratio¹ is one of the clearest indicators of a good insurer.

Term Insurance Plans with More Claim Settlement Ratio

With industry-leading term insurance claim settlement ratios¹, the term insurance policies at Tata AIA are among the most reliable in the country. As per IRDAI Annual Report 2019-20, the life insurance claim settlement for Tata AIA stood at 99.06%. In particular, a TATA AIA Life Insurance  plan offers not only a convenient claims process but also a host of benefits, such as the flexibility to choose your payout as a lump sum or income (or both).

You will also be eligible for tax* deductions on the premiums paid towards the policy under Section 80C of the Income Tax Act.

L&C/Advt/2022/Nov/2885